For many individuals, owning their first home and vehicle brings along a strong attachment towards ensuring that these are not damaged by unforeseen events. Therefore, someone who has just bought a brand new car will always look towards protecting it comprehensively towards any damage caused to it. He will probably leave no stone unturned in buying a comprehensive insurance policy and might not look at reducing his car insurance premium for a minimum of 3-4 years from the date of purchase.
However, someone who has a good driving profile and is also keen on reducing his car insurance premium, may opt for higher deductibles as we already know that opting for higher deductibles is one of the ways to lower your insurance premium.
What is deductible?
“A deductible is basically the amount ‘deducted’ from an insured loss. Deductibles have been an essential part of the insurance contract and represent a sharing of the risk between the insurance company and the policyholder. Though it is a mandatory clause to deduct a minimal amount towards own damages caused to a car which has to be borne by the vehicle owner, there is another deductible which is voluntary in nature to opt for – Compulsory deductibles,” says Rajiv Kumar, MD & CEO, Universal Sompo General Insurance.
Compulsory deductibles are calculated on the basis of the car engine capacity. For example, for a four wheeler vehicle of more than 1500 cc, the compulsory deductible is Rs 2000 and if the engine is less than 1500 cc, the deductible is Rs 1,000. Compulsory deductibles are provided only in Comprehensive Coverage policies with a view to lower the incidence of claims. “Compulsory deductibles discourage policyholders to raise smaller claims because they know that a part of it will have to be met from their pocket, which will also help in saving No claim bonus which you enjoy after claim-free renewal. A higher level of compulsory deductible ensures that drivers will be urged to drive cautiously to avoid damages and resultant claims,” says Kumar.
Voluntary deductible is generally opted by car owners when the car has turned more than 4-year old or when the usage of the car has reduced drastically. Voluntary deductible discounts begin from 20% to a maximum of 35% on own damage premium only. Discounts in premium on Voluntary Deductible is not extended to third-party premiums.
When to go in for deductibles?
“At the start of your policy or during renewal, you can choose this voluntary deductible value and the higher you choose this value to be, your premium decreases by a specified percentage. It,therefore, makes sense to opt for higher deductibles if you have a good driving profile. However you need to increase your voluntary deductible only as much as you can afford. Having a large deductible reduces yearly premium but can defeat the purpose of your claim. To choose an appropriate Voluntary Deductible, it is important to keep in mind the make and model of the car as well as the age of the vehicle,” says Kumar.
A wise calculation on deciding an appropriate Voluntary Deductible should be derived based on the usage and the age of the vehicle. It should not be that, in case of a severe damage to the vehicle, a vehicle owner pays a hefty sum from his own pocket for the repairs based on the higher voluntary deductible he/she has chosen. You need to ensure that potential savings on the premium are more than the expenses you could incur in case of a claim.